Used car prices have increased in recent months, but dealers are paying less at auction for the used cars they later sell.
According to the Manheim Used Vehicle Value Index, wholesale auction prices are now about 10.3% lower than they were at this time last year after adjusting for normal seasonal variations. The index is a product of Kelley Blue Book parent company Cox Automotive.
The index dropped 4.2% in June from May.
Chris Frey, senior manager of Economic and Industry Insights for Cox Automotive, says the 4.2% drop is “amount the largest declines” in the index, which dates back to 1997.
Retail Prices Usually Follow Wholesale Trends
When wholesale prices drop, retail prices usually follow within six to eight weeks. That relationship has been less predictable than usual this year because of the lingering effects of the COVID-19 pandemic.
Related: Why the Used Car Market is So Bad, and Won’t Get Better Soon
Automakers built about 8.1 million fewer cars during the height of the COVID-19 pandemic, resulting in fewer cars available to enter the used car market. Consumers also changed their leasing behavior. Millions of Americans driving leased cars chose to buy them rather than return them to start a new lease. That choked off a supply dealers rely on for a steady stream of lightly-used cars.
Our analysts tell us that has blunted the effect of falling wholesale prices.
Consumer Confidence Is up, but so Are Interest Rates
Used car shoppers also face challenges trying to finance a purchase. Interest rates have been rising, and many lenders charge higher rates for used car loans than for new car loans, even under the best economic conditions.
The Conference Board Consumer Confidence Index increased by 7.0% in June as views of the present situation and future expectations improved. Consumer confidence was up 11.5% year over year. Plans to purchase a vehicle in the next six months declined but were little changed year over year.
